Category: Stock Market

Trade tensions between Australia and China are poised to escalate which could put a $153 billion export market in jeopardy. Tensions have been growing between the 2 trading partners following the Australian government’s push to launch an independent inquiry into the COVID-19 pandemic.

In response, the Chinese government has retaliated to suggestions of an independent inquiry by imposing economic pressure. China recently suspended beef imports from 4 meat processing plants in Australia and has threatened to slap major tariffs on Australian barley exports.

Chinese businesses and consumers have been a reliable source of demand for many Australian goods and services. As a result, Chinese demand has an important role in the post-pandemic recovery of Australia’s economy.

Here are 3 ASX shares that are reliant on Chinese demand and could suffer from a potential trade war.  

Nufarm Limited (ASX: NUF)

Nufarm is a crop protection and specialist seeds company that supplies domestic and international farmers with support for food production. However, the company’s reliance on China as a supplier could put local farmers under pressure to produce crops and feed for livestock.

Nufarm’s supply chain is heavily exposed to negative repercussions from trade tensions with China. The company currently gets all of its products needed for agricultural production, such as herbicides and pesticides, directly from China. As a result, tariffs and supply constraints could have wider consequences.   

Elders Ltd (ASX: ELD)

Agribusiness companies like Elders could also be right in the firing line if trade tensions with China escalate. Elders is a leading supplier of fertiliser, chemicals and livestock to regional and rural Australia. The company also has strong exposure to trade with China.

Elders currently imports all the ingredients for its crop protection and fertiliser distribution business from China. In addition, the company is also involved in the direct sale and distribution of Australian beef and lamb to Chinese consumers.

According to reporting in the Australian Financial Review, the government’s select committee into COVID-19 and the security issues the pandemic raises will also look at the supply-chain risk around Chinese imports.

Treasury Wine Estates Ltd (ASX: TWE)

The Australian wine market is already under pressure following a harsh bushfire summer. Australia is the 5th largest exporter of wine in the world, with China accounting for the majority of the volume.

The operations of Treasury Wine reflects the wine industry’s reliance on China, with Asia being the company’s most profitable market. Treasury Wine relies heavily on demand from China, generating more than 40% of its total profits from Asia. The company’s prestigious and luxury brands, such as Penfolds, are highly popular in the Chinese market and offer better profitability margins.

Treasury has already downgraded its earnings forecast due to the COVID-19 pandemic. Trade tensions could put the company under further pressure given its poor performance in other international markets.

Foolish takeaway

Although iron ore and coal are the largest imports to China, companies in these sectors have a greater pull in Chinese trade. In my opinion, companies and businesses that are heavily reliant on China for growth in the short and long term are the most susceptible to trade tensions.

More reading

• Indonesian market boom for 6 ASX shares
• How a Chinese boycott could impact these ASX shares
• How to earn more frequent retirement income from ASX shares
• Treasury Wine share price falls 5% as it faces another class action
• Have ASX shares in the Australian wine sector bottomed?

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia has recommended Elders Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Is the Telstra Corporation Ltd (ASX: TLS) share price a good long-term buy today?

TLS shares are indeed having a strong day – up 1.13% at the time of writing to $3.12. However, Telstra shareholders are still significantly underwater so far in 2020  and a long way from the near-$4 levels we were seeing in January and February.

So does this mean it’s a good time to jump into Telstra? Well, let’s take a look!

Why Telstra shares have dipped in 2020

Like most ASX shares, Telstra has not escaped from the ravages of the coronavirus unscathed. The company was forced to cut back on its T22 cost-cutting strategy earlier in the year, which was to involve job cuts. Whilst this is great news for Telstra’s employees and (in my opinion) the right thing to do, it will mean that the company won’t be as profitable in 2020 and 2021 as a result. This partly explains the depressed Telstra share price, in my view.

Nevertheless, Telstra has maintained the interim and special dividends that it paid in March at 8 cents per share and has given no indication that its final dividend (due to be paid in September) is under threat.

On current prices, that would give Telstra a dividend yield of 5.13%, or 7.33% grossed-up with full franking credits.

Are Telstra shares a long-term buy today?

As a dividend share alone, I think Telstra is worthy of consideration for a portfolio today. It is a very defensive company – we are all willing to pay for internet and phone services through thick and thin these days. In this era of ultra-low interest rates, I think a solid dividend adds a lot of value to this company.

Looking forward, I see a lot of value in the Telstra share price, too. The company is investing heavily in 5G technology which has the potential to overhaul the 4G tech that’s currently in use across all mobile devices. Applications for 5G range from the Internet of Things (IoT) to improved healthcare and ‘smart cities’.

As the country’s biggest telco with the most cash to throw around, I think Telstra stands to benefit most from the rollout of 5G and I think every Telstra shareholder should be excited about the potential of this new technology for the company.

Foolish takeaway

I think there’s a compelling case for a long-term buy with Telstra shares at current prices. Right now, Telstra is a solid dividend stock with a robust yield but there’s also the potential of the future 5G to look forward to. There’s hopeful upside without too much downside, a combination I like!

More reading

• 3 blue chip ASX dividend shares to buy right now
• Why high yield dividend shares can be detrimental to your wealth
• Is it time to buy ASX small caps for your portfolio?
• Top ASX Dividend Stock Picks for May 2020
• 3 high quality ASX shares for a retirement portfolio

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 200 Index (ASX: XJO) has fallen heavily over the last couple of months due to the coronavirus pandemic.

This has led to some of the shares on the index trading at a significant discount to their highs.

Three ASX 200 shares that are down 30% or more in 2020 are listed below. Are they bargain buys?

Australia and New Zealand Banking Grp Ltd (ASX: ANZ)

The ANZ share price is down 37% since the start of the year. Investors have been selling the bank’s shares due to concerns over the impact the pandemic is having on its profits and ultimately its dividends in the near term. This was evident in ANZ’s recent half year results, which saw the bank post a 51% decline in profit to $1.55 billion. This decline was largely the result of credit impairment charges of $1.674 billion and led to the bank deferring its dividend. While this was disappointing, I’m optimistic that the worst is now priced into its shares. So, with Australia on the path to reopening, now could be a good time to invest.

Nearmap Ltd (ASX: NEA)

The Nearmap share price is down 37% in 2020. The aerial imagery technology and location data company’s shares were sold off earlier this year due to a number of downgrade/churn events which led to Nearmap downgrading its guidance. While this was disappointing given its long track record of smashing expectations, I feel confident it is just a temporary headwind and its long term outlook remains very positive. In addition to this, the company has recently announced cost cutting measures and expects to be cash flow breakeven by the end of the financial year. This means the risk of a dilutive capital raising is now very small. In light of this, the quality of its product, and its massive market opportunity, I believe Nearmap would be a top option for patient investors.

Sydney Airport Holdings Pty Ltd (ASX: SYD)

The Sydney Airport share price has fallen 37% since the start of the year. This sizeable share price decline has been driven by the coronavirus pandemic and the impact it is having on passenger numbers. There’s no denying that the short term outlook is bleak, but things will improve as restrictions ease. I suspect that its shares will begin to rerate higher as its passenger numbers recover. This could make it worth being patient with Sydney Airport’s shares and holding them with a long term view.

More reading

• This is the best ASX big bank stock you can buy right now
• How can the ASX 200 soar with rising unemployment?
• ASX 200 down 0.9%: CBA reveals $1.5bn COVID19 provision & gold miners charge higher
• Dividends are drying up – but not for these ASX shares
• Safe dividend stocks to buy today for the COVID-19 world

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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There is no doubt that the downturn in overseas travel has been devastating to our local travel industry. Many of our leading ASX travel shares have seen their share prices plummet in recent months as bans on international travel have kicked in.

Data just released by the Australian Bureau of Statistics (ABS) indicates that overseas arrivals in Australia in April 2020 were down by 99% compared with April 2019.

Devastating impact on ASX travel shares

Since 20 February, Australia’s major airline Qantas Airways Limited (ASX: QAN) has seen its shares decline by a massive 47%. Qantas recently secured a further $550 million in funding against 3 of its aircraft, following a $1.05 billion raising in March.

The COVID-19 impact on its major competitor Virgin Australia Holdings Ltd (ASX: VAH) has been even more devastating, with Virgin shares falling heavily in the months before the company entered voluntary administration in April.

The travel booking sector also has been hit savagely, as both international and domestic flight bookings have dried up. Corporate Travel Management Ltd (ASX: CTD) has seen a partial rebound in its share price since mid-March to now be down around 30% since 20 February.

Unfortunately, the same can’t be said for Webjet Limited (ASX: WEB), which is down 67%, and Flight Centre Travel Group Ltd (ASX: FLT), which is down by 71%, in the same period. Both Webjet and Flight Centre were forced to undergo capital raisings to boost liquidity and try to ensure they come out of the crisis in a sound financial position.

Sharp decline in April part of a downward trend

The ABS revealed that over two-thirds of the 22,000 arrivals in April were citizens returning from overseas, while just under 7,000 arrivals were non-Australian citizens.

The ABS further noted that the decreases in arrivals and departures during April were part of a continuing downward trend that has been evident in the past few months since travel restrictions were first put in place by the Australian government at the beginning of February.

When will international travel pick up again?

It is quite possible that domestic travel could gradually start to pick up in the months ahead as the government begins to ease lockdown restrictions. However, the chances of international travel getting back to normal to any significant degree before the end of this year are highly unlikely.

While the Australian government hasn’t made any official comments, the most likely first step for international travel will be for flights to resume between Australia and New Zealand, with travel between Australia and other countries introduced further down the track when the outbreak of the pandemic globally is more under control.

More reading

• ASX stock of the day: This ASX airline share jumped 45% today on expansion speculation
• Regional Express soars 45% higher amid plans to take on Qantas and Virgin Australia
• The smartest ASX shares to buy if you have $2,000
• Why Afterpay, Flight Centre, Mesoblast, & Sezzle shares are dropping lower
• 3 top ASX 200 shares you can buy on sale today

Motley Fool contributor Phil Harpur owns shares of Corporate Travel Management Limited and Webjet Ltd. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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I think it’s very possible to build good wealth with small investments. You just have to utilise the power of compound interest.

If you think you need to invest hundreds of thousands of dollars to build good wealth then you’d be mistaken.

There are great calculators out there that help you calculate how much you can build your wealth in the coming years and decades.

According to Moneysmart, if you invest $500 every month for 20 years and the share market grows at 10% a year then you’d finish with $380,000. That’s not millionaire status, but investing $6,000 a year is fairly achievable for most households. That’s not increasing the monthly $500 investment at any point.

Imagine if you were 25 and had 40 years to compound your wealth to retirement instead. You’d end up with over $3.1 million.

What ASX shares would be helpful for building good wealth?

You could go for good exchange-traded funds (ETFs) that provide diversification and have cheap fees like BetaShares Australia 200 ETF (ASX: A200), iShares S&P 500 ETF (ASX:IVV) and iShares S&P Global 100 (ASX: IOO).

You could go for quality fund managers like Magellan Global Trust (ASX: MGG), WAM Global Limited (ASX: WGB) or Future Generation Investment Company Ltd (ASX: FGX).

Or to build your wealth you could go for some of the best individual shares out there like Brickworks Limited (ASX: BKW), Pushpay Holdings Ltd (ASX: PPH) or Bubs Australia Ltd (ASX: BUB).

More reading

• Revealed: 5 dividend shares for reliable income
• Why high yield dividend shares can be detrimental to your wealth
• Is it time to buy ASX small caps for your portfolio?
• The Pushpay share price is up 70% in 2020: Why I would still invest
• Is it time to invest in shares or wait on the sidelines?

Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO, MAGLOBTRST UNITS, and WAMGLOBAL FPO. The Motley Fool Australia owns shares of and has recommended Brickworks, BUBS AUST FPO, and PUSHPAY FPO NZX. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Superannuation has gotten a lot of publicity lately. On one hand, super balances around the country were subjected to some pretty nasty volatility earlier in the year when the first wave of fear over the coronavirus gripped the markets. Since the S&P/ASX 200 Index (ASX: XJO) fell over 38% peak-to-trough in March, most Australians would have seen the value of their super balance fall quite far in all likelihood.

On the other hand, the government has allowed some individuals to withdraw up to $10,000 from their super accounts in this financial year to assist with hardship because of the coronavirus. Another $10,000 is permitted in FY21 (starting in July).

Despite these issues, superannuation still has a powerful potential to help you build long-term wealth – a potential that is too often ignored.

So where does this potential come from? Well, it’s the nature of the super system itself.

The advantages of super

Superannuation isn’t a ‘form of investment’ or an ‘asset class’, as is often misconstrued. It’s merely a vehicle that can hold other assets (like ASX shares) within it.

But unlike investing outside your super fund, the rules over tax are very advantageous if you invest through super.

For one, contributions are typically only taxed at 15% on entry – as opposed to other income which is taxed at your full marginal rate. All earnings that the assets within your fund generate (e.g. dividends and interest) are also taxed at 15%.

As such, super can be viewed as something of a tax shelter.

Now, normally, all Australian employers are required to pay 9.5% of each employee’s salary into super. This level is the bare minimum most employees will receive, but you can also contribute on top of this base with salary sacrificing.

Salary sacrificing is also done with pre-tax dollars (up to a cap), so you will also be paying less tax on this money. Of course, the downside is that you can’t touch the money until retirement.

How superannuation can make you a millionaire

By using this vehicle effectively and over a long period of time, you can significantly boost your wealth and prospects of a comfortable retirement. Compound interest works best when it’s left alone and works even better in a tax-sheltered environment like super.

So if you aren’t already, it might be a good idea to take full advantage of our super system. There are many perks like salary sacrificing to invest within super that investors ignore to their detriment. Don’t be that guy – make sure your super is working as well as it can for you today!

More reading

• Top brokers name 3 ASX 200 shares to buy right now
• LNG spot price surge benefits ASX 200 shares
• The smartest ASX shares to buy if you have $2,000
• ASX gold shares steady: Can gold provide your portfolio with defensive and safe returns?
• Is $1,000 of A2 Milk shares a good investment?

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Regional Express Holdings Ltd (ASX: REX) shares rocketed out of a trading halt this morning to be up as much as 45% on speculation the airline will start flying between capital cities. This would see Regional Express compete with Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings Ltd (ASX: VAH). 

3 airlines for Australia?

Media reports say Regional Express, which emerged from the ashes of Ansett, is planning to fly between capital cities and not just to them. The plans would involve flights between Australia’s biggest capitals, Sydney, Melbourne, Adelaide, Brisbane, and Perth. This would give Australia a 3 airline market, with Regional Express operating something between a budget and full-service airline. 

Regional Express today said it is considering the feasibility of commencing domestic airline operations. The airline disclosed it had been approached by several parties interested in providing the equity needed for it to start regional operations in Australia. With airlines globally struggling due to the travel downturn, Regional Express may be able to access additional aircraft at distressed prices. 

What does Regional Express do? 

Regional Express is Australia’s largest independent regional airline. It operates a fleet of 60 aircraft which, prior to coronavirus, were making some 1,500 weekly flights to 59 destinations across Australia. The airline received funding from the Australian Government to continue to operate during the coronavirus pandemic. 

While the value of government funding has not been disclosed, it was enough to allow the carrier to offer 1-2 return flights per week to most destinations in its network. Additional funding has since been secured, enabling the airline to operate 88 weekly services across Australia. 

Expansion plans

Regional Express estimates it would require $200 million to expand its operations. The board is exploring the feasibility of the endeavour and has begun talks with potential equity partners to expand to include domestic operations in addition to regional services. 

According to the Australian Financial Review (AFR), the business plan would involve leasing 10 narrow-bodied jets. “The most significant aspect of this is we will be the only capital city operator that is debt-free,” Regional Express’ deputy chairman John Sharp told the AFR. 

With a sufficient capital injection, the Regional Express board believes, “there is a confluence of circumstances which render the start of domestic operations by Rex to be a particularly compelling proposition.”

The Board expects to make a decision on proceeding in the next 8 weeks. If they decide to proceed, domestic operations are expected to commence on 1 March 2021. 

More reading

• Regional Express soars 45% higher amid plans to take on Qantas and Virgin Australia
• Up 140% since March: the ASX airline share flying under the radar
• In a post-COVID world, could Australia be the next superpower?
• 3 ASX 200 pandemic winners and 3 losers
• Are there any safe havens in ASX aviation shares?

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Australia’s largest listed bank showed why it’s the premium pick among ASX big bank stocks.

The Commonwealth Bank of Australia (ASX: CBA) issued its quarterly results this morning, which on the surface contained some disturbing pieces of news.

But if you scratched beneath the surface, there was plenty to like about the update that also contained clues about the bank’s dividends.

Ignore the bad news

As mentioned, you’d need to look past some of the disturbing news to get to the good stuff. The things investors may not like to hear about included a 23% crash in cash profit of $1.3 billion for the March quarter.

The bank also set aside $1.5 billion in additional provisions due to the COVID-19 crisis and warned that house prices could collapse by up to 32% under its worst case scenario.

But the update also reinforced my view that investors should be overweight on CBA relative to the other big three banks.

CBA’s dividend safer than peers

For one, I think CBA won’t be cutting its dividend nearly as much as its peers when it reports its full year results in August.

While there’re multiple earnings headwinds beating down on CBA, the bank’s CET1 ratio stands at 10.7%. Even after it paid more than $3.5 billion in interim dividends, its regulatory cash buffer is still comfortably above the 10.5% “unquestionably strong” level set by our banking regulator APRA.

What’s more, CBA now has an extra $1.7 billion to play with as it sold a 55% stake in its wealth manager Colonial First State to private equity group KKR.

Stronger balance sheet

What this means, in my mind, is that CBA’s management will have little excuse to make a dramatic chop to its dividend.

This sets the bank apart from its peers. Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) suspended dividends when they reported their interim results to keep their CET1 ratios at acceptable levels.

National Australia Bank Ltd. (ASX: NAB) went a step further and launched a $3.5 billion capital raise and slashed its interim dividend by two-thirds to 30 cents a share.

Worth paying for

There were concerns that CBA’s results will be equally as bad as its peers, but the most expensive big bank stock proved the adage “you get what you pay for”.

The more than halving in profits at the other big banks makes CBA’s 23% earnings decline look like a profit upgrade!

As inappropriate as it sounds during this coronavirus pandemic, experience taught me it’s often better to cough up for quality, especially during a crisis.

The only bank stock that I think is better placed is Macquarie Group Ltd (ASX: MQG), but if you excluded the investment bank, CBA is clearly the standout in the sector.

More reading

• 4 top ASX shares to invest $4,000 into immediately
• How can the ASX 200 soar with rising unemployment?
• ASX 200 down 0.9%: CBA reveals $1.5bn COVID19 provision & gold miners charge higher
• Dividends are drying up – but not for these ASX shares
• Why CBA, CSR, Fortescue, & Northern Star shares are pushing higher

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, Macquarie Group Limited, National Australia Bank Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Yes, you really can become a better investor in just 2 minutes!

In his iconic 1989 book ‘One Up On Wall Street’, legendary investor Peter Lynch describes a 2-minute drill that he thinks any investor should follow before parting with their money:

Before buying a stock, I like to be able to give a two-minute monologue that covers the reasons I’m interested in it, what has to happen for the company to succeed, and the pitfalls that stand in its path.

The drill acts a lot like a safety barrier. It forces you to cement your arguments and think about potential risks that lie ahead. It also lets you identify when an investment is failing to perform and should be sold.

Lynch goes on to say “[o]nce you’re able to tell the story of a stock to your family, your friends, or the dog so that even a child could understand it, then you have a proper grasp of the situation.”

In fact, Warren Buffett is also an advocate for writing down the exact reason you’re thinking of buying shares in a company, commenting on the importance of knowing your motives:

One thing that could help would be to write down the reason you are buying a stock before your purchase. Write down “I am buying Microsoft at $300 billion because…” Force yourself to write this down. It clarifies your mind and discipline.

Let me show you what this practice might look like:

Should I buy CSL shares?

One company high on my watch list right now is CSL Limited (ASX: CSL).

My main reason for wanting to buy shares today is that I think CSL has a powerful flywheel and strong pricing power reminiscent of the best companies in the world. I think there will be strong, long-term demand for its patent-protected products which will drive continued revenue growth.

For this to happen, and justify the current share price, CSL will need to continue to invest in and develop innovative products. It will need to make some careful acquisitions. It will need to maintain its unyielding focus on customer safety. And it will need to relentlessly protect its supply of plasma, which is a key component of its products. 

Foolish takeaway

The 2-minute drill does not guarantee investment success, however, taking the time to think honestly about the company you’re about to invest in (and writing it down!) can give you clarity on your investment expectations. 

More reading

• 4 top ASX shares to invest $4,000 into immediately
• The smartest ASX shares to buy if you have $2,000
• Why the coronavirus is still affecting share markets
• Is this ASX healthcare share about to soar?
• Where to invest $10,000 in ASX 200 shares immediately

Regan Pearson has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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